Elimination of double taxation — receipts of foreign-sourced income by Finnish-resident individuals

If you live in Finland your payment of tax in Finland also covers any foreign-sourced income that you may have. But you may also have to pay tax to the country of source. Double taxation is nevertheless eliminated either by giving you credit for foreign-paid taxes, or by exemption from Finnish taxation.

If you were to pay taxes on the same income in both Finland and the country of source, your taxes would be double. Two alternative methods exist for preventing this: (1) the taxes paid in the other country can be credited, or (2) the income concerned can be exempted . The credit method is the most common, the exemption method only applying if a bilateral tax treaty between Finland and the country of source includes clauses to that effect.

Report foreign-sourced income and demand the elimination of double taxation

The e-Service has opened 8.3.2018 for the taxpayers whose personal deadline date for filing a tax return is 3.4.2018 (self-employed traders and self-employed professionals). For other taxpayers, the opening date is at the end of March.

In your pre-completed tax return, enter your foreign-sourced income, the foreign tax you have paid on it, the type of income concerned (wages, dividends, or other types) and the name of the country of source.

There is no need to return the pre-completed tax return, if you report all the details online.

The withholding system may be used for advance prevention of double taxation

If you submit written proof that you must pay foreign tax during the current year your Finnish withholding rate may be reduced (or tax prepayment made lower). However, you must still report the foreign income and taxes on your tax return.

Credit method: overseas tax is subtracted (credited) from Finnish tax

Foreign-sourced income is taxed in Finland but the tax paid in the other country is subtracted.

Example: David has had €5,000 as foreign-sourced income and has paid €1,000 in foreign tax on it. Under Finnish tax rules this income would have been assessed at €1,300 if it were taxed in Finland. Consequently, the foreign-paid tax will be credited against the Finnish tax (€1,300 - €1,000), and David must pay €300 in Finland.

No higher credit can be granted than the amount that Finnish tax rules would require for the income concerned

It should be noted that the maximum level of credit is the amount that Finnish tax rules would require as the tax on the income concerned. This means the theoretical amount of tax that would be collected in Finland. Consequently, if the foreign-paid tax is higher than the maximum credit, you cannot get credit for the difference. Examples of such tax assessments include situations where foreign tax rates are higher than the corresponding rates in Finland, or if you have less income in Finland than overseas, or if you have made a loss in Finland with regard to the source of income concerned.

Example: Thomas had €5,000 as foreign-sourced income and paid €1,500 in foreign tax. Under Finnish tax rules this income would have been assessed at €1,300. So, the foreign tax is higher than the Finnish tax and the credit in Finland cannot be more than €1,300. The €200 that remains uncredited can later be credited, during five subsequent years, against any foreign taxes paid on the same income type.

During the five subsequent years we can give credit later for foreign-paid taxes on the same income type, or on income from the same foreign source of income, and we process the unused credit amounts in chronological order.

Exemption method: No Finnish taxes on foreign-sourced income

Some countries have made tax treaties with Finland in which it is agreed that income sourced in the other treaty country is not subject to Finnish tax. However, if you have such income it will still have an effect of raising your taxes on your other incomes (this is known as exemption with progression).

Example: Madeleine has €5,000 in foreign-sourced earned income and €20,000 in earned income in Finland. The Finnish tax percentage rate on the €20,000 would mean that 30% tax would be payable. However, the fact that more income has originated from a foreign source makes the sum total determine the final progressive rate of taxation. Thus Madeleine's tax base becomes €25,000 income, which means 35% as the income tax rate. She must actually pay tax in Finland only on the Finnish-sourced income, the €20,000, but the rate will be 35%.

Capital income tax rate is 30%. If the annual total is above €30,000 the capital income tax rate on the exceeding part is 34 %. In this way, there is a progression of the rate, and the Finnish Tax Administration takes the foreign-sourced income into account when determining it. In taxation of capital income, foreign-sourced income is taken into account in situations according to the exemption method.

If you have income from foreign sources and the exemption method is being implemented, you are entitled to deductions for the production of income, and the maximum amount to be deducted cannot be higher than the amount of foreign-sourced income itself. However, you cannot deduct more expenses than the amount of your foreign-sourced income.